Difficulty Securing Office Property Financing Intensifies
A growing number of office property owners are unable to pay back their maturing loans because they can’t secure new mortgages. According to Moody’s Analytics, “only one out of every three securitized office mortgage that expired in the first nine months of 2023 was paid off by the end of September,” representing the “smallest share for the first nine months of any year since at least 2008” as well as the rate before the pandemic. Among the commercial mortgage-backed securities (CMBS) that didn’t get paid during that period, about 50% ended up in default. The rising number of delinquent CMBS loans has tripled over the past year, fueled by remote work and rising vacancies reducing building profits, making it harder to pay interest. At the same time, “higher interest rates have pushed debt costs up and building values down” with many banks no longer issuing new office loans, while many insurance companies and debt funds have become more cautious. According to Trepp’s statistics, the share of delinquent office CMBS loans has tripled over the past year to 5.75%.